UNIT 1.

INTERNATIONAL TRADE & PROTECTIONISM

import quotas - compromises - imports - high - low - quantity of products
- inspections - tariffs - international trade - protectionism

When a government legislates policies to reduce or block (1)_______ it is engaging in

(2)________. Protectionist policies often seek to shield domestic producers and domestic
workers from foreign competition. Protectionism takes three main forms: tariffs, import
quotas, and nontariff barriers.
(3) ________ are taxes that governments impose on imported goods and services. This
makes imports more expensive for consumers, discouraging imports. For example, in
recent years large, flat-screen televisions imported to the U.S. from China have faced a 5%
tariff rate.
Another way to control trade is through (4)________, which are numerical limitations on
the (5)________ that a country can import. For instance, during the early 1980s, the Reagan
Administration imposed a quota on the import of Japanese automobiles. In the 1970s, many
developed countries, including the United States, found themselves with declining textile
industries. Textile production does not require highly skilled workers, so producers were
able to set up lower-cost factories in developing countries. In order to “manage” this loss
of jobs and income, the developed countries established an international Multifiber
Agreement that essentially divided the market for textile exports between importers and
the remaining domestic producers. The agreement, which ran from 1974 to 2004, specified
the exact quota of textile imports that each developed country would accept from each low-
income country. A similar story exists for sugar imports into the United States, which are
still governed by quotas.
Nontariff barriers are all the other ways that a nation can draw up rules, regulations,
(6)________, and paperwork to make it more costly or difficult to import products. A rule
requiring certain safety standards can limit (7)________ just as effectively as (8)________
tariffs or (9)________ import quotas, for instance. There are also nontariff barriers in the
form of “rules-of-origin” regulations; these rules describe the “Made in Country X” label
as the one in which the last substantial change in the product took place. A manufacturer
wishing to evade import restrictions may try to change the production process so that the
last big change in the product happens in his or her own country. For example, certain
textiles are made in the United States, shipped to other countries, combined with textiles
made in those other countries to make apparel—and then re-exported back to the United
States for a final assembly, to escape paying tariffs or to obtain a “Made in the USA” label.
Realizing the (10)_________ between nations that come about due to trade policy, many
countries came together in 1947 to form the General Agreement on Tariffs and Trade
(GATT). This agreement has since been superseded by the World Trade Organization
(WTO), whose membership includes about 150 nations and most of the world's economies.
It is the primary international mechanism through which nations negotiate their trade
rules—including rules about tariffs, quotas, and nontariff barriers.